Leading real estate advisor CBRE has released its latest figures on the office markets in Edinburgh and Glasgow during the first quarter of 2021.
Stewart Taylor, head of CBRE’s Scottish office agency business, commented: “The modest levels of office space take-up during the first quarter of the year won’t surprise anyone. However, what we are seeing, despite the lockdown, is that occupiers, particularly the corporates, now have a sense of their direction of travel. They want to provide great workspace for their returning employees and while it varies sector to sector, most employers want their staff in for part of the week. This may mean less space in some cases but it also means higher quality, ESG-enabled accommodation. As restrictions are lifted there are positive signs of a busy second quarter with some healthy requirements to fulfil in both Glasgow and Edinburgh.”
Andy Cunningham, senior director at CBRE in Glasgow, said: “As expected, office take-up for the first quarter in Glasgow was modest. But with Scotland almost fully locked down for the first three months of the year, few were anticipating much activity in the way of transactions, in both size and volume. Promisingly however, there are several signs of encouragement that should see Glasgow bounce back, once again displaying to investors and occupiers alike why it remains Scotland’s most popular office destination.”
Take-up for the Glasgow office market totalled 74,641 sq ft, a 62% drop from the same period in 2020 and 64% down on the Q1 five-year average of 206,439 sq ft. It takes Glasgow’s take-up figure across the twelve months since measures to stop the spread of Covid were introduced to 323,716 sq ft. With restrictions about to be lifted across the country, this figure will show in the archives as the amount of office transactions that occurred in Glasgow during the height of the pandemic.
The biggest deal of the quarter was at 2 Cadogan Square, with construction firm Multiplex Europe taking 34,052 sq ft, representing one of the largest Q1 deals of the past five years in Glasgow. Other notable deals included MDDUS taking 11,300 sq ft at 206 St Vincent Street, with CBRE acting for the landlord, DSSR acquiring 6,300 sq ft at Speirs Wharf on a five-year term and Nucleus Financial agreeing to take 4,170 sq ft at 241-243 West George Street.
In addition to this take-up, there was 40,500 sq ft of re-gears in the first quarter as several notable organisations sought to consolidate the office space they occupy.
Current office supply sits at 1,752,570 sq ft, up 17% from the year-on-year figure. This includes a mixture of recently refurbished office space coming onto the market and second-hand vacated space that landlords are seeking to let again. It is important to note however that available Grade A space within the city remains critically low, with just over 6,000 sq ft currently on the market, representing a vacancy rate of 0.03%.
Andy Cunningham continued: “Despite the figures across Q1, we are aware of over 640,000 sq ft of live requirements having come to the market since March as office occupiers seek to move to business space that is suitable to the needs of both their workload and, perhaps more importantly, their staff. No other Scottish city has had such interest and it really showcases the appeal of the Glasgow office market, as well as reassuring many that the city is in an excellent place to do business again once restrictions are eased.
“Given the real shortage of Grade A space within the city, prime occupiers may well have to battle for what little new office space there is available on the market at present and so prime rents are expected to rise throughout the year as a result of this. Just as Glasgow has arguably suffered the most from the economy being shut, the city will benefit the most when the measures are lifted over the coming weeks and months.”
Angus Lutton from CBRE in Edinburgh commented: “Even with the modest level of take-up in Q1, Edinburgh’s renowned reputation and appeal as a location that occupiers want to operate from, has seen it weather the Covid storm reasonably well. With encouraging signs in the first three months of 2021, the capital can be buoyed by the prospect of a strong recovery.”
Over the first quarter of 2021, office take-up in Edinburgh totalled 89,566 sq ft, down 31.4% from the same period in 2020 and down 52% against the five-year Q1 average.
Promisingly, the city witnessed 28,000 sq ft of Grade A space transacted during the first quarter, demonstrating the appetite for premium space within the city, with a third of new occupiers opting for best-in-class office space within Edinburgh despite the last twelve months of turbulence.
Notable deals included Motorola taking 10,884 sq ft at Caledonian Exchange in a deal where CBRE advised Motorola. Rockstar Games acquired additional space at Holyrood House, with just under 10,000 sq ft transacting, and consumer review website Trustpilot took 9,200 sq ft at St Andrew Square. There were 27 deals in total across the quarter, down by just four from the same period in 2020. The last few weeks of the quarter also saw a significant upturn in viewings.
Unsurprisingly, supply has crept up in Edinburgh, with 1.79m sq ft of office space now available within the city. 825,281 sq ft of this total is considered city centre stock and of this, 232,413 sq ft is new Grade A, representing a vacancy rate of 1.3% and showing that Grade A office accommodation in Edinburgh remains at a premium.
The shortage of both available and pipeline Grade A space has meant that prime rents have not fallen unlike in other parts of the UK. A further differentiating factor has been the lack of grey space that has entered the Edinburgh market. While the last twelve months have been tough for landlords, these factors suggest a relatively swift bounce back for the best space. At present, out of the 572,000 sq ft of office space under construction in the city, 61% has already pre-let.
Prime rents currently sit at £37 per sq ft and there is evidence to suggest by the end of 2021 that figure will rise as demand for limited Grade A space continues.
Angus Lutton continued: “In this three-month period of complete lockdown, to reach nearly 100,000 sq ft of office transactions is impressive, especially when benchmarked against Q2 2020, the last complete lockdown in the city, where Edinburgh only managed 26,000 sq ft of take-up. Indeed, this suggests a return to occupier confidence within the city in light of an impressive vaccination roll out and an economic road map that has allowed many to now plan for the immediate future.
“The impact of the pandemic has naturally seen office supply rise, but it is still some way off the record high levels of availability recorded between 2008 and 2012. This is further evidence that Edinburgh has not only shown a resilience through the economic downturn, but that it is also in a much stronger place to bounce back compared to previous downturns.
“More encouragement can be taken from the number of current active requirements. 92 separate occupiers have expressed interest in taking space in Edinburgh since the start of the pandemic, equating to some 640,000 sq ft. We predict a spike in interest once the Scottish Government announces a date on which workers can return to the office.
“All in all, there are plenty of reasons to be optimistic about the year ahead for Edinburgh, both in its office market and further afield. With the new St James’ Quarter near completion, there is a real sense that the city centre is very much alive and ready to welcome people back.”